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He Ain't Heavy, He's My (Diluent) Part 3 - The Pipelines that Transport Diluent to the Oil Sands

Producers in Alberta’s oil sands have been through good times and bad times the past few years. Sure, there’s been a lot of growth in output since 2010. But they’ve also seen wildfires that forced one-third of production offline. And pipeline takeaway constraints that sent prices tumbling and spurred government-imposed production cutbacks. And lately, they’ve been struggling through a global pandemic that slashed crude-oil demand and led to further curtailments. Despite it all, producers and the province of Alberta are hopeful about an oil sands rebound, and shippers are optimistic that they can source an increasing share of the diluent they would need to transport bitumen from Western Canada. There’s good news on that front: there appears to be plenty of diluent pipeline capacity already in place between Alberta’s diluent hubs and its oil sands production areas. Today, we continue our series by exploring the major pipeline systems that distribute diluent supply to the oil sands.

Diluent has become a catch-all word for any light liquid hydrocarbon that allows bitumen from Alberta’s oil sands to more easily flow through a pipeline or be shipped in a rail tank car. In Part 1 of this series, we began by exploring Western Canada’s rising demand for diluent resulting from the strong increase in bitumen production over the past decade. Bitumen production has climbed from 0.70 MMb/d in 2010 to 1.77 MMb/d in early 2020, pushing the demand for diluent from 300 Mb/d to more than 700 Mb/d over the same timeframe. Diluent demand has pulled back in the past few months due to bitumen production curtailments in response to record low heavy-oil prices and COVID-19 driven demand weakness. Nevertheless, the amount of diluent produced in Western Canada is still insufficient to meet all of the existing need, and two major diluent import pipelines, the Enbridge-owned Southern Lights pipeline and Pembina Pipelines-owned Cochin pipeline, have continued to make up most of the difference in needed diluent. (The remaining, small portion of the diluent demand is met by synthetic crude oil, or SCO; the resulting bitumen blend is referred to as “synbit.”)

Part 2 delved into the nature of the diluent produced in Western Canada. About 92% is condensate (a.k.a. natural gasoline in the U.S.) that comes straight from the wellhead or is processed by gas processing plants and fractionators in Alberta, British Columbia (BC), and Saskatchewan. The remainder is primarily butane, also provided by the same array of gas processing and fractionation plants. We then considered the major pipeline systems that transport those liquids from the unconventional plays, dominated by the Montney, to the main distribution centers in Edmonton/Fort Saskatchewan and Hardisty. The largest of these is Pembina’s Peace Pipeline system, spanning across a wide swath of western Alberta and into northeastern BC. Two other pipeline and gas plant operators, Keyera and Plains Midstream Canada, handle most of the rest of the liquids transportation from other parts of western and central Alberta.

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